LONDON (Reuters Breakingviews) - British taxpayers could end up funding Santander’s efforts to grab a larger share of the UK business banking market. Helping one of Europe’s biggest lenders sounds like an odd way to shake up the dominance of established banks. But small-business customers will probably benefit over time.
State-owned Royal Bank of Scotland is taking measures worth about 835 million pounds to increase competition in business banking – a market currently dominated by the Edinburgh-based lender and fellow high-street behemoths Barclays, Lloyds and HSBC. The package, which was designed to meet state aid conditions arising from RBS’s crisis-era bailout, includes 425 million pounds of grants to “challenger banks and other financial services providers” to help them to grow business lending.
The catch is that the UK subsidiary of Santander qualifies for funding, which can be tapped by any bank whose gross UK assets are worth less than 350 billion pounds. Smaller lenders are reportedly cross that they have to compete for funds with a Spanish bank whose 2008 acquisition of former building society Alliance & Leicester made it a relatively large player in the UK retail market.
Critics miss the point of an aid package whose primary aim is to cut RBS’s market share. Dividing funds purely between relative minnows would have achieved this in the short term. But the risk is that one or more of TSB, Clydesdale or Metro Bank might fail to break into the mainstream, to the benefit of RBS, Barclays or Lloyds. By contrast, Santander has the scale, physical presence and balance sheet to quickly increase its business-banking market share from below 10 percent. Small lenders might be irked about how the funding package is shared out, but giving Santander a slice could be the best way to promote competition.
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